These three things determine your coffee shop rental
If you are starting a cafe, the monthly coffee shop rental is a significant expense item, which means the lower this component, the better your profit margin. And these are the three things that affect how much you rent:
- The proximity of the coffee shop to human traffic
- The proximity of anchor tenants
- The size of the coffee shop
The proximity of the coffee shop to human traffic
This variable is the only component many cafe owners mull over when considering the location of their F&B outlet.
- The proximity to established landmarks
If your upcoming F&B outlet is near a shopping district (e.g. Orchard road in Singapore, Ginza in Japan, Gangnam in South Korea), the rental for your cafe will be significantly more expensive.
The chart below shows the average retail shop rent across South Korea. You will notice that the well-known cities with a higher density of population command a higher rent.
- The proximity to transportation infrastructure
You will also be expected to pay a much higher rent if the space you are looking at is near a transport interchange. Traditionally, bus/train depots and airport/seaport real estate command a higher rent due to their higher density of human traffic.
- The proximity to entrances and exits.
In the chat below, you will also notice that the first level (near to entrances) is three times higher than the higher levels. In the example of Orchard road in Singapore below, the difference is about 300%.
The proximity of anchor tenants
While the proximity to landmarks, infrastructure such as bus depot sees high traffic because of utility purposes (e.g people need to use the bus depot). An anchor tenant is a destination that draws in traffic, e.g. a shopping mall or cinema will draw in traffic.
So, when evaluating a location such as a shopping mall, you will want to assess the tenant mix and ensure a well-balanced mix of shops.
There is a trend in many shopping malls to increase the ratio of food and beverage establishments. The chart below shows the revenue contribution of outlets to shopping malls. The percentage of F&B outlets is quite high compared to department stores; the latter used to be a destination for shoppers.
An absence of a good anchor tenant meant that your cafe will have to be the destination to draw in traffic, which will increase your marketing budget.
The size of the coffee shop
The size of your coffee shop rental space translates to higher or lower rent, and these two things affect your cafe planning and size:
- Your service area
- The size of your kitchen
- Service Area
How many people do you intend to serve in your cafe? This is a critical component in the manpower-starved region such as Singapore. Even if you have a bigger sitting capacity, could you find the required manpower to staff your kitchen or front of the house?
- Think instead of how fast you can “turn” the tables to serve more customers.
- Or, work out a possible online ordering menu (see reports for online food delivery market size) or encourage customers to pre-order for takeaway.
Learn about the wages and how much coffee shop employees make.
- Size of the kitchen
Having a bigger kitchen allows you to serve more customers at a faster turnaround time. However, you still need the required manpower to optimise the operation of the kitchen.
We will suggest a lean kitchen concept and a heavier reliance on automation to reduce the size of the kitchen and the dependence on manpower.
Consideration can be given to collaboration with OEM kitchens to produce ready-to-cook format, which only requires a good speed oven such as the MerryChef. In such a scenario, not only do you not need to pay for a bigger space, you also do not need to engage skilled chefs (anyone can operate can so Sous Vide cooking).
A gauge for you when planning the floor plan of your coffee shop is per square feet turnover -is all the space in your cafe optimised for revenue?
Work out your cafe set-up cost
Read more about the different components of a coffee shop startup cost
If you enjoy this article on coffee shop rental - check out other content about setting up of cafe.
About US | OCM Profile
OCM (OnCoffeeMakers.com) was started in 2007 with the first webpage about coffee machines. And for a number of years, we focused on helping people find their desired coffee machine (we still are helping folks with that! So, if you are looking for coffee machines for office or restaurants - check out the link).
In 2010, we started getting enquiries on restaurant marketing and we start to help food and beverage brands with their marketing. Below are campaigns and events that we have done over the years:
OCM's campaigns: F&B Marketing Ideas by OCM
OCM's Events: F&B Industry events by or with OCM
Check out this restaurant marketing guide to learn more about the many campaigns and companies we have worked with.
Since then, we have also created many marketing workshops and classes for the F&B industry. Many of these modules are still running in tertiary institutions such as Temasek Polytechnic Skillsfuture Academy and also ITE College East COC classes, below are some snippets of our lectures and workshops:
OCM’s F&B workshops: Food and Beverage Marketing Lectures | Workshops - click to watch classes on customer journey map, JTBD and more.
So, if you are looking for industry practitioners to help you scale your coffee or F&B businesses, do drop us a message or book an appointment. Do also check out our various social media platforms on regular F&B and coffee market updates:
For regular coffee (F&B) related videos: OCM Youtube
For Daily Coffee Inspiration (fun coffee content): OCM IG
For insights into the coffee (F&B) industry: OCM LinkedIN
PS: For the coffee lovers, we continue to share coffee articles (and videos) and have also started a free coffee class section (with free online coffee training supported by coffee partners).
